In today’s highly competitive business landscape, organizations need to measure their performance against predefined objectives to stay ahead of the competition. The balanced scorecard (BSC) is a tool that helps them achieve this goal. Keep reading to find out the BSC definition and get practical tips on implementing it!
What Is A BSC?
The BSC is a strategic management tool that enables businesses to align their goals with their resources and measure their performance against those targets.
What You Need To Know About BSCs
Developed by Robert Kaplan and David Norton in the early 1990s, the BSC concept evaluates organizational performance from four different perspectives:
- Financial – the company’s financial performance, such as revenue growth, profitability, and return on investment
- Customer – how the business provides customer value and ensures client satisfaction and loyalty
- Internal processes – how efficient the firm is in its internal operations
- Learning and growth – to what extent is the company able to gain experience, innovate, and improve
To create an effective BSC, businesses must define their objectives in each of these four perspectives and identify the key performance indicators (KPIs) that will be used to measure progress towards those goals.
The objectives to be used in the BSC must follow the so-called SMART formula, which means that they should be:
- Specific
- Measurable
- Attainable
- Relevant
- Time-bound
For example, a goal for the financial field in the BSC could be to “increase revenue by 10% in the next quarter”, while an objective for the customer sphere could be something like “increase client satisfaction by 20% over the next six months”.
As for the KPIs for the balanced scorecard, they will depend directly on the objectives. For instance, for the financial objective mentioned above, some relevant KPIs are average order value, sales conversion rate, and gross profit margin.
Once the objectives and KPIs are defined, businesses need to track their progress by monitoring and reporting their performance against these markers. As a result, the BSC will serve as an effective means of identifying areas where they are failing and help them improve their performance.
